Causes of Consumer Bankruptcy in Australia: A Macroeconomic Analysis

Rising consumer bankruptcy levels have serious consequences, not only for the bankrupts themselves, but also for lending institutions and the wider community who ultimately bear the cost of this economic loss. This paper examines the causes of consumer bankruptcy in Australia using a macroeconomic model, which includes variables representing unemployment, interest rates, household indebtedness, the average period out of work, and gambling. All variables with the exception of household debt are found to be statistically significant and the model explains 91 percent of the variation in consumer bankruptcy. The results suggest that the relationship between gambling and consumer bankruptcy may be much greater than has previously been reported, a finding which has implications for current bankruptcy policy. Further, the rising trend in consumer bankruptcy might be expected to continue with the upturn in the interest rate cycle, although this trend may be mitigated to some extent by a decline in unemployment